The great property swindle: why do so few people in Britain own so much of our land?

Modern British history, excluding world wars and the loss of empire, is a record of two countervailing changes, one partly understood, one not understood at all. The partly understood change is the urbanisation of society to the point where 90 per cent of us in the United Kingdom live in urban areas. Hidden inside that trans­formation is the shift from a society in which, less than a century and a half ago, all land was owned by 4.5 per cent of the population and the rest owned nothing at all. Now, 70 per cent of the population has a stake in land, and collectively owns most of the 5 per cent of the UK that is urban. But this is a mere three million out of 60 million acres.

Through this transformation, the heirs to the disenfranchised of the Victorian era have inverted the relationship between the landed and the landless. This has happened even while huge changes have occurred in the 42 million acres of rural countryside. These account for 70 per cent of the home islands and are the agricultural plot. From being virtually the sole payers of such tax as was levied in 1873 (at fourpence in the 240p pound), the owners of Britain's agricultural plot are now the beneficiaries of an annual subsidy that may run as high as £23,000 each, totalling between £3.5bn and £5bn a year. Urban dwellers, on the other hand, pay about £35bn in land-related taxes. Rural landowners receive a handout of roughly £83 per acre, while urban dwellers pay about £18,000 for each acre they hold, an average of £1,800 per dwelling, the average dwelling standing on one-tenth of an acre.

Britain urgently needs land reform, but there is a problem. The "tenants" of between 30 and 50 per cent of the Home Island land mass are unknown. I use the word tenant deliberately. Here's why. In a written response to a question by Andrew George MP in February 2009, Bridget Prentice, a parliamentary undersecretary at the Ministry of Justice, replied, "The Crown is the ultimate owner of all land in England and Wales (including the Isles of Scilly): all other owners hold an estate in land. Although there is some land that the Crown has never granted away, most land is held of the Crown as freehold or leasehold."

Prentice omitted to add that, as the preamble to the Land Registration Act 2002 put it, "the concepts of leasehold and freehold derive from medieval forms of tenure and are not ownership". What this means is that, in relation to land in the UK, we are all tenants on the basis of the feudal superiority of the Crown, a superiority created in 1066 and founded on legal norms that were created to uphold that same feudal superiority.

This expensive medieval legal miasma in relation to land might not matter, if the confusion did not directly impinge on the size of our homes and even more directly on the price of land, which can be as much as 80 per cent of the cost of a new home. Both the size and the cost of houses are predicated on the idea that land is scarce in the UK, but this is a myth propagated by those with an interest in selling plentiful land expensively.

The home islands together with Northern Ireland are 60 million acres in extent. It is estimated that there are 62 million people living on those acres, giving every man, woman and child a little under an acre apiece. An acre is a little over half the size of a standard Football Association pitch, which is why that measurement is used here. Almost everyone in the country knows what a football pitch looks like. Very few people know how to visualise a hectare.

So, who wants the acre on the top of Ben Nevis? You don't have to go to a Scottish mountain to find plenty of land, however. England, one of the most urbanised countries in the world, has abundant spare acres. This is because less than 6 per cent of the entire island of Britain - and 10 per cent of England - is urban. Put another way, for every acre that is bricks and mortar, home or business premises, nine acres are not. This is not counter-intuitive. Most people understand it as they get out of urban areas, big or small, and journey by train or car through some of the greenest and most pleasant land on earth.

What runs counter to what you see is the propaganda, unremitting and relentless, from the environmental and countryside lobbies, telling you that the UK is a small and crowded island and that within 30 years the last blade of grass in England will be concreted over. At the current rate of urbanisation, which is about 14,400 acres a year, England won't finally fall to "concretisation" for 2,014 years.

Behind the scare stories is a very simple financial fact: an acre of rural land worth £5,000 becomes an acre of development land worth between £500,000 and £1m once planning permission is obtained. Moreover, most land granted planning consent is registered offshore and is thus tax-free, or virtually so. If the true availability of land in the UK were known, the conversion factor would not be quite so generous. The true availability of land starts with who tenants or holds it freehold.

What we need in this country is a debate about land, informed by facts. The obvious place to look for the facts is the three land registries of England and Wales, Scotland and Northern Ireland. Here we encounter two extraordinary but related anomalies: we have land registries that do not record the ownership of land at all and a second Domesday book that did record the ownership of all land in the UK but vanished. These facts are not unrelated.

First, the land registries. Most people think that this is where the ownership of all land in the UK is recorded. They are wrong. Formally created by the Land Registration Act 1925, the current three land registries only partly succeed where a series of earlier attempts failed, beginning in 1875. Before that, there were deed registries in most counties in the United Kingdom. The effort to create a land registry happened at roughly the same time as the publication in 1873 of the Return of Owners of Land, the so-called second or new Domesday Book, a coincidence that almost certainly led to the failure of the push for a registry.

The second Domesday of 1873 exposed the inequity of land ownership in Victorian Britain - that all land in the UK was then "owned" by just 4.5 per cent of the population, while 95.5 per cent of the population owned nothing, not even a blade of grass. Domestic home ownership was in its infancy at the end of the 19th century; most of the land was the property of a very small network of aristocratic families, most of which had dual links to the House of Commons and the Lords. Those who owned everything also had political control of everything.

The second Domesday recorded the ownership - yes, the word used was ownership - of at least 98 per cent of all land in the four countries of the then United Kingdom: England, Scotland, Wales and Ireland. The details of each owner's holding, name and address, together with the valuation of any land of more than one acre, were recorded and printed in four volumes running to 2,300 pages and containing 321,000 names and addresses. The details of the owners of less than an acre were recorded but not printed. And it was all completed in four years. The current Land Registry for England and Wales is at least 35 per cent short of that achievement after 86 years of trying, and in the age of computers.

The failure to record the ownership of land in the UK arises not from failures by the staff running the registries, but from the way they were constructed by lawyers on behalf of landowners. The land registries were designed to conceal ownership, not reveal it. Shocked by the detailed revelation of the actual acreage that they held, the great landowners did two things. First, they refused to register their land with the new land registry in 1875. Second, they had one of their own, the Hon George C Brodrick, Old Etonian warden of Merton College and second son of Queen Victoria's chaplain, the landowning 7th Viscount Midleton, damn the Returns in his 1881 work, English Land and English Landlords. No academic work relating to the Returns appeared subsequently until 2001.

By the early 1920s, the pace of urban home ownership in London and throughout the UK necessitated an expansion of land registry activity. This resulted in a series of land registration and land regulation acts that reaffirmed the Crown's feudal superiority by creating two forms of lease - for a term of years, or freehold of indefinite duration. The structure passed into law in 1925; nothing significant has changed since.

With rare exceptions, ownership dictates how land is used. Those who now "hold" the bulk of the acreage of the UK are extremely hard to identify, almost entirely because of the defects in the land registries. But they are for the most part the descendants - the so-called cousinhood - of the great landowners of 1873. Among them are the current Duke of Buccleuch, with his 240,000 acres, the Duke of Northumberland, with 131,000 acres, the Duke of Westminster, with 129,000 acres, and the Prince of Wales, with 141,000 acres.

With ownership information missing, planning of any kind, whether national or local, is extremely difficult. And finding out who is getting the money is almost impossible.

In 2002, Michael Wills, then parliamentary secretary in the lord chancellor's department with responsibility for the Land Registry, wrote to the Liberal Democrat MP Adrian Sanders setting out the limitations of its remit:

1. The Land Registry does not record ownership of land.
2. It records two forms of tenancies: leaseholds for a term of years and freehold tenancies of indeterminate duration.
3. It creates titles without recording the acreage of each title.
4. Its records are not kept in a manner which would enable the registry to establish with any certainty what land was owned by a particular organisation or individual.
5. The titles to only about 65 per cent of the acreage of England and Wales are recorded; in Scotland and Northern Ireland it is 85 per cent and 50 per cent respectively.

What the land registries do is record the freehold titles of the domestic dwellings of the UK, and they do that in an exemplary way. This is to damn with faint praise, however, given that domestic dwellings cover three million acres in the UK at most. Those may be the most valuable parts, but they still constitute only 5 per cent of the country's land mass.

The 60 million acres of the UK are broadly comprised of 42 million acres of "agricultural" land, 12 million acres of what is called natural waste (mountains, bog, moor and so on) and six million acres of the urban plot (houses, shops, businesses). When it comes to our homes and the taxes we pay, only two of the three sectors are significant. These are the taxed land where most of our homes and businesses are, and agricultural land, which is untaxed and subsidised.

Many businesses are subsidised by the taxpayer, for various reasons - to retain jobs, to improve technology, to keep businesses in the market. But the agricultural subsidy is strange. Pared down to its essentials, it is a permanent and unaudited gift from the taxpayer to the owners of rural land. Introduced in America in the 1920s, in Britain after the Second World War and in the European Union in the 1970s, subsidies were intended to keep the agricultural sector viable and food supplies secure. In practice, the agriculture subsidy appears instead to have become a permanent prop to an unprofitable business as well as a free handout to the rich.

If the business of farming is profitable, why does it need the subvention? It is most abused internationally by the United States, whose farm subsidy regime distorts trade throughout the world, making it impossible for many farmers in the developing world to enter international markets, much less trade in them. But the EU, and its member states, mirror every bad American practice.

In the UK, the average "farmer" receives between £18,260 and £23,000 every year from the taxpayer for an average farm of 220-plus acres, whether or not he or she grows or herds anything. There are no current subsidy figures specifically for England and Wales, according to Jack Thurston, a London-based expert on the subsidy regime. "The UK government has refused to supply them," he says.

However, according to Andy Wightman, author of The Poor Had No Lawyers: Who Owns Scotland (And How They Got It), quoting figures from the Scottish government: "During the ten years from 2000 to 2009, the top 50 recipients of agricultural subsidy received £168m - an average of over £3.3m per farmer. Among the top 50 are some of Scotland's wealthiest landowners, including the Earl of Moray, Leon Litchfield, the Earl of Seafield, Lord Inchcape, the Earl of Southesk, the Duke of Buccleuch, the Earl of Rosebery and the Duke of Roxburghe."

The crucial point is that the subsidy ultimately winds up with landowners, giving them greater flexibility in relation to the release of land for building homes. Wightman cites the case of Frank A Smart & Son Ltd, a company that owns 39 farms in Speyside. In 2009 it received over £1.2m in single farm subsidy, the largest payment in Scotland.

The same company sold 18 building plots and six building properties on one of its farms, bought for £300,000 in 1991, for £1.3m. It made a profit of over £3.1m in 2008, and in March 2009 sold 24 plots of land with planning consent for more than £2.9m.

This pattern is repeated throughout the UK. A subsidy originally intended to help poor farmers winds up padding the profits of rich landowners while keeping poor farmers in the developing countries out of the market altogether. Is this the worst case ever of unintended consequences?

Together, homes and businesses in the UK pay as much as £57bn annually in de facto land taxes, such as business rates (£22bn) and council tax (£35bn a year, including stamp duty and charges). The subsidy of up to £5bn that the UK agricultural sector receives comes from British taxpayers, not some remote bureaucracy in Brussels.

In the UK, 90 per cent of the population lives on the three million acres of the urban plot. They work in the remaining three million acres of industrial and business land and live in an estimated 27.1 million homes, 18.9 million of which are privately owned and 8.2 million of which are publicly or privately rented. So 90 per cent of the population has made a deliberate choice and has paid for it, usually at double the cost of the home over the term of the mortgage needed to secure it.

The annual cost of that choice in terms of tax paid by the 70 per cent of us who are private owners, in addition to mortgage interest, averages out at £1,851 per home. Those in rented accommodation pay no mortgage but do pay some rates. People living in rented accommodation end up without an asset, whereas private home­owners at least acquire an asset. It comes at a very high cost, however, one that is subject to severe fluctuations in value.

The estimated gain on a UK house over the past 20 years, inclusive of tax and mortgage, is less than 4 per cent per annum. Over the long term - and most people change homes perhaps only once or twice in a lifetime - homes turn out to be a very modest investment.

The financial crisis demonstrated the raw capacity of capitalism to destroy or place entire economies at risk as well as to expel hundreds of thousands of people from their home through repossession. The world financial system had to be rescued by emergency state spending and the imposition of taxes on entire populations and countries. A properly functioning system should not require subsidy on that scale to save it. Free-market capitalism failed because it suffers from huge design flaws. It is inherently unstable and lopsided. And nothing in the UK demonstrates this quite like the housing market.

Most land in the UK held monopolistically by large landowners or estates follows the rules of what the American social economist Mancur Olson called "hidden coalitions". How these work in the UK and their impact on the housing market is very simply explained.

First, no one knows just how much land is available for development or from whom it is available. The result is that UK homes are both the smallest in Europe and the most expensive, with the land or site costing a vast proportion of the value of the dwelling. From the perspective of the 31 million people, or half the UK population, who pay direct taxes, what we are doing is in effect paying an inefficient business - the 325,000 "farmer" holders, or 0.5 per cent of the population - to keep hold of building land, further falsifying an already rigged market. The finer figures are worse. Only two-thirds of UK farms are owned; the other one-third is rented, mostly from the owners of the other two-thirds. In effect, the agriculture subsidy goes to the 0.36 per cent of the population that owns 70 per cent of the country.

If the 65,000 "farms" of under two acres are subtracted as economically meaningless, what you have is 50 per cent of the population, the taxpayers, paying 0.28 per cent of the population to hold the bulk of the country's landed assets and to make those plentiful assets scarce. The result is that the cost of a building site is two or three times what it should be for 70 per cent of the population. This is Britain's great property swindle.

When home ownership became endemic, two things happened. First, the banks, highly monopolistic institutions with a profound lack of understanding of money, as they recently demonstrated, commoditised and monetised the most basic human need for shelter: our homes. But then those of us who managed to buy a home and hold on to it finally had a stake in the capitalist system. This was economically novel. It had never happened before.

The Domesday Book of 1873 records the beginning of private home ownership in the UK - in effect, the beginning of popular participation in the capitalist market system. No economist, not even Karl Marx, who was still alive when the second Domesday was published, foresaw the transformation that this would bring about. Marx thought that capitalism would always be confined to a minority, and that the majority would be a rent-paying proletariat. A superficial look at the second Domesday would have confirmed this. That is how it was then, but it's not how it is now. The transformation is fundamental to both capitalism and democracy.

Private home ownership destroys the notion of rent as a significant element of the overall economic equation. The estate agent Savills recently demonstrated what this means. The national debt, which we are supposed to lie awake at night worrying about, is roughly £1trn. The total value of the privately owned national housing stock is over £3trn. The ratio of debt to equity in the housing stock is about 1:4. In other words, for every £1 of mortgage debt, there is £3 of free asset value.

Back in 1870s, for a UK population then of 28 million, there were just over 3.84 million dwellings, of which 703,000 were privately owned. Between 1873 and 2010, the population multiplied by 2.2, but the number of houses jumped more than sevenfold. The number of privately owned houses increased to 18.6 million, a 26-fold increase, as the majority of the population moved from landless to landed, from a waged proletariat to an asset-owning democracy.

Today the great popular asset pile is threatened by tax addicts on one side, acting for inefficient government, and defective bank-dominated capitalism on the other. The banks, knowing the real situation about the land supply market, that it is rigged and opaque, recently felt safe enough to inflate a house-price bubble that showed reckless disregard for housing's primary purpose - to provide enduring shelter for people. That problem could have been contained eventually by normal domestic fiscal adjustments, no matter how brutal. What no one allowed for was that the banks, the masters of money, would blow a second, and even more destructive, asset bubble in their own basic commodity, money.

The banks created fictional assets and ran a bubble market in these, using other people's money. They incinerated about half the global stock of money, other people's money. When the banks' internal bubble burst, it left no assets, just worthless paper. The property bubble at least left some habitable assets behind. No matter how financially damaged, something could be rescued from the crash in house prices. The only rescue available for the banks was for money to be printed and for a lien to be taken on the entire nation's taxes for the next ten to 15 years. We owe the banks nothing except our debts.

What we urgently need is a clear, simple and logical land registry in each of the four nations of the Union, with all land ownership recorded and the names of the owners indexed, as at the present Scottish land registry, and with the acreage stated.

In parallel with that change, we need formally to extinguish the Crown's expensive, legally meaningless and complex feudal claim to all land in the UK, a claim that was informally challenged by parliament in 1873 by using "owners" in the title of the Return of Owners of Land. Finally, and even more urgently, we need to simplify both land law and the appalling and wholly unnecessary language in which it is dressed up by fee-farming lawyers.

If these three things can be achieved, it will lead to a simplification of documentation and a lowering of lawyers' fees for land transactions.Yet those three steps, useful though they might be, will not take us to the heart of the matter, which is the urban acreage of the UK and the houses we live in, which stand on it.

To become environmentally efficient and more habitable, and with ever larger numbers of people working from home, houses need to be larger and, wherever possible, to have a garden. To achieve this transformation, we need to know the facts about land and its use, not the fiction spun by those trying to sell plentiful acres as if they were a scarce commodity.

Next week, in the second part of his investigation into land ownership, carried out exclusively for the New Statesman, Kevin Cahill asks: "Who owns the world?"